Clause 49 won't spare erring PSUs: Sebi chief

Public sector companies that are yet to comply with the Clause 49 norms of listing agreements for appointing independent directors could be penalised for non-compliance, Securities and Exchange Board of India Chairman M Damodaran said today.

"The companies will have to face whatever penalty is prescribed for non-compliance with listing agreements. The stock exchanges will submit a report on the state of compliance by the all the listed companies in the next 10 days," Damodaran, said at the sidelines of a conference of CEOs of public sector enterprises. The deadline for complying with the revised Clause 49 expired on December 31, 2005.

The companies that have not complied with the clause stand to face a penalty of up to Rs 25 crore and their directors could be punished with imprisonment of up to 10 years, according to the provisions of the Securities Contract (Regulations) Act.

"The earlier fine of Rs 1,000 for not complying with listing agreements, now includes imprisonment and stiff fines," Sumesh Sahni, partner at Amarchand & Mangaldas, said.

In case of public sector units, the role of the government becomes important as its nominees are treated as independent directors for the purpose of Clause 49.

The Securities and Exchange Board of India's definition of independent directors excludes all interested parties but allows nominees of institutions to be treated as independent directors irrespective of whether an institution is an investing institution or a lending institution.

(This is a corrected version of an earlier story)